OCBC Investment Research
Date of Report: 2 September 2025
China’s Banking Giant Under the Microscope: In-Depth Analysis of Agricultural Bank of China and Peers’ Financial Health and Outlook

Executive Summary: Broker Downgrades ABC Despite Outperforming Peers

Agricultural Bank of China (ABC), one of the country’s “Big 4” state-owned banks, has posted resilient results for the first half of 2025. However, OCBC Investment Research has downgraded the stock to SELL, citing a fair value below current trading levels and raising concerns over profitability, capital adequacy, and sector-wide headwinds. This comprehensive analysis covers ABC’s financial results, capital and profitability ratios, ESG performance, and compares the bank’s metrics to sector peers including China Construction Bank (CCB), Bank of China (BOC), and Industrial and Commercial Bank of China (ICBC).

ABC 1H25 Results: Outperformance in PATMI, But NIM Compression Weighs

ABC reported a 2.7% year-on-year rise in Profit After Tax and Minority Interest (PATMI) to CNY 139.5 billion for 1H25, outshining its major state-owned peers. The interim dividend was declared at CNY 1.195 per 10 shares (~30% payout ratio). The bank’s net interest income (NII), however, slipped 2.9% YoY due to a 13 basis point (bps) contraction in net interest margin (NIM) to 1.32%. In contrast, non-interest income soared 14.5% YoY, driven by a 10.1% rise in net fee and commission income.

Pre-provision operating profit (PPoP) edged down 0.2% YoY to CNY 258.1 billion. Credit impairment losses fell 3% to CNY 98 billion, supporting a rise in operating profit and PATMI.

Capital Adequacy & Profitability: Mixed Signals

– The Common Equity Tier 1 (CET1) capital adequacy ratio dipped 31bps to 11.1% HoH. – Total capital adequacy ratio fell by a sharper 74bps to 17.5%. – Non-performing loan (NPL) ratio improved slightly by 2bps to 1.28%, but allowance to NPL coverage deteriorated 4.6 percentage points to 295.0%. – Profitability ratios softened: Return on average total assets dropped 5bps YoY to 0.62%; return on weighted average net assets fell 59bps YoY to 10.2%.

Dividend Policy & Payout

ABC announced an interim dividend of CNY 1.195 per 10 shares, maintaining a payout ratio of around 30%. The dividend yield remains attractive relative to peers.

ESG Performance: Ahead in Staff Management and Data Protection, But Gaps Remain

– ABC’s ESG rating has remained steady since December 2023. – The bank leads peers in staff management and formal pipeline strategies for talent development. – Governance is on par with global standards, featuring anti-money laundering policies but lacking whistleblower protection. – Excels in data protection and consumer protection, and is proactive in integrating ESG practices into lending, including climate-risk analysis. – However, sector-specific ESG credit policies are still missing.

Valuation, Peer Comparison, and Key Metrics

Despite its steady fundamentals, ABC is currently trading above OCBC’s fair value estimate of CNY 6.35 (last close: CNY 7.05), prompting a downgrade to SELL. The following table compares ABC’s key valuation metrics with those of its Big-4 peers:

Company Overview: Agricultural Bank of China’s Core Franchise

– Established in 1951, ABC is the third largest bank in China by assets, loans, and deposits. – ABC has the second-largest domestic branch network with 22,877 outlets. – The bank’s business mix is diversified, with a strong retail and corporate banking presence.

Financials: Five-Year Performance Snapshot

Potential Catalysts and Key Risks

Potential Catalysts:

• Macroeconomic slowdown in China’s rural areas is less severe than anticipated
• Further improvement in asset quality metrics
• Better-than-expected stabilization in net interest margin trends

Key Risks:

• Weaker rural economic growth than forecasted
• Keen competition from other banks and risk of losing deposit market share
• Higher operating and funding costs
• Contraction in fee income growth

Conclusion: Outlook and Investment Recommendation

OCBC Investment Research maintains its fair value estimate for ABC at CNY 6.35, below the last close of CNY 7.05, and downgrades the stock to SELL. Despite solid fundamentals, the bank faces challenging profitability and capital adequacy outlooks, while competitive and macroeconomic pressures persist. ABC’s efforts to enhance rural banking, digital finance, and ESG integration are notable, but investors should closely monitor sector headwinds and valuation gaps before positioning in the stock.

About Agricultural Bank of China: A Brief Profile

– Founded in 1951, ABC is a state-owned commercial bank with deep rural roots and a leading urban presence. – It boasts the second largest domestic branch network in China. – Major shareholder: Central Huijin Investment Ltd. (44.0% stake). – Market capitalization: CNY 2,396.8 billion. – Free float: 23%.
This comprehensive review provides financial decision-makers with a clear, data-rich view of ABC’s current standing, peer comparison, and the critical factors shaping the bank’s future.